AP Needs to Ramp Up Investments Across the Value Chain to Meet Demands Under State’s Power for All Scheme

AP Needs to Ramp Up Investments Across the Value Chain to Meet Demands Under States Power for All Scheme

Andhra Pradesh needs to ramp up its transmission and distribution infrastructure if it wants to revitalize its power sector and achieve Power for All for the state, says a World Bank study.

More Power to India: The Challenge of Distribution, presented in Hyderabad today is a review of the Indian power sector across key areas of access, utility performance, and financial sustainability. The study, conducted at the request of the Government of India, has identified electricity distribution to the end consumer as the weak link in the sector.

The study recommends freeing utilities and regulators from political interference, increasing accountability, and enhancing competition in the sector in order to move it to a higher level of service delivery. It calls for a transition from administratively run to commercially run utilities.

The power distribution sector in Andhra Pradesh has made losses since 2012-13.  This is despite the state being an early reformer (early 2000s), and having initiated several initiatives like improved metering, regular energy audits, dedicated industrial feeders, regular increase in tariffs and despite it being among the states with the lowest technical and commercial losses (AT&C) in the country.

The report points to several reasons that have constrained the power sector in the state from growing including the cost of power purchase which rose sharply for distribution companies (discoms) from Rs 2.81per unit in 2009-2010 to Rs 3.39 per unit in 2011-12 and to Rs 4.25 per unit in 2012-13. The volume of power purchased from short term sources rose from 860 million units (MU) in 2009-10 to 10,094 MU in 2012-13 a 14 percent rise.

Andhra Pradesh is constrained in purchasing cheap power from other regions because of inadequate inter-regional transmission links even though the southern grid is now a part of the national grid. The lack of power is compounded by the inefficiency of existing plants. The Plant Load Factor (PLF) has deteriorated from 87 percent in FY09 to 80 percent in FY14 and delays in commissioning of new plants due to lack of fuel.

While making an urgent call for change, More Power to India recognizes the many impressive strides that the Indian power sector has made over the years. Generation capacity tripled between 1991 and 2012, boosted by the substantial role played by the private sector. A state-of-the-art integrated transmission grid now serves the entire country. Private distribution utilities in Kolkata, Mumbai, Surat and Ahmedabad, which have been owned and operated by the private sector since before Independence, point to potential gains from private participation. Grid-connected renewable capacity has risen from 18MW in 1990 to 25,856 MW in March 2013. And more than 28 million Indians have annually gained access to electricity between 2000 and 2010.

However, according to the study, the financial health of the sector is fragile, limiting its ability to invest in delivering better services Total accumulated losses in the sector stood at Rs 2.88 trillion or 3 percent of GDP in 2013.

These losses are overwhelmingly concentrated among distribution companies (discoms) and bundled utilities State Electricity Boards (SEBs) and the State Power Departments, says the study. Sector losses have led to heavy borrowing power sector debt reached Rs 5.07 trillion in 2013. More than 40 percent of the loans were made to discoms.

Over the last two decades the sector has needed periodic rescues from the central government -- a bailout of Rs 350 billion in 2001 and a restructuring package of Rs 1.9 trillion that was announced in 2012.

Poor Performance of Distribution

Several factors have contributed to the losses in the distribution segment, according to More Power to India. The cost to discoms of purchasing power has risen faster than their revenues have, primarily due to fuel shortages and the need for expensive fuel imports by generators and also due to generation inefficiencies and low capacity utilization of power stations that have pushed up the price of power. Also, tariffs have not kept pace with costs over the years. This has in turn led to an increase in borrowings resulting in increases in interest costs. Finally, there are factors that are well within the control of utilities such as under-collection of bills and delayed collection of payments, along with the fact that more than one-fifth of electricity purchased is collectively lost by the utilities, so does not generate revenues for them.

Projections show that even if tariffs rise 6 percent per year to keep up with the cost of supply, annual losses in 2017 will likely amount to Rs 1,253 billion (US$ 27 billion).

Source: World Bank

SMART GRID Bulletin March 2017


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